BP Takes $1.5 Billion Charge Related to U.S. Tax Overhaul -- Update

BP PLC is joining a host of companies whose earnings will be dented by the U.S. tax overhaul, saying Tuesday it would suffer a roughly $1.5 billion accounting charge in the fourth quarter because of the legislation.

The charge, which won't affect the company's cash flow, highlights the wide-ranging impact of changes to the American tax code enacted by Congress and signed by President Donald Trump late last year. The accounting hit will weigh on BP's version of net earnings for the fourth quarter of 2017, a period when profits were expected to surge because of buoyant oil prices.

Continue Reading Below

BP said the tax bill would help the company in the long term, reducing the corporate tax rate it and other companies pay in the U.S. to 21% from 35%.

However, in the short term, BP said the tax changes would change the value of its deferred-tax assets. Companies can log such assets during unprofitable periods and use them as credits toward future tax payments. Lowering the overall corporate tax rate makes those assets worth less on paper.

Last week, Royal Dutch Shell PLC said the impact on its earnings will likely be a noncash hit of between $2 billion and $2.5 billion in the fourth quarter. Banks, including Barclays PLC and Credit Suisse Group AG have also warned they will record significant charges in the fourth quarter related to the tax changes.

BP said it is still reviewing the ultimate impact of the tax rewrite.

Write to Sarah Kent at sarah.kent@wsj.com

Advertisement

LONDON -- BP PLC said Tuesday it would take a $1.5 billion accounting charge in the fourth quarter related to the U.S. tax overhaul, though it said the longer-term benefits of a corporate tax cut would be positive.

The charge, which won't affect the company's cash flow, highlights the wide-ranging impact of changes to the American tax code enacted by Congress and signed late last year by President Donald Trump. The accounting hit will weigh on BP's version of net earnings for the fourth quarter of 2017, a period when profits were expected to surge because of buoyant oil prices.

BP said the tax bill would help the company in the long term, reducing the corporate tax rate it and other companies pay in the U.S. to 21% from 35%.

However, in the short term, BP said the tax changes would change the value of its deferred-tax assets. Companies can log such assets during unprofitable periods and use them as credits toward future tax payments. Lowering the overall corporate tax rate makes those assets worth less on paper.

Last week, Royal Dutch Shell PLC said the impact on its earnings will likely be a noncash hit of between $2 billion and $2.5 billion in the fourth quarter. Banks, including Barclays PLC and Credit Suisse Group AG have also warned they will record significant charges in the fourth quarter related to the tax changes.

While BP said the long-term effects of the corporate tax overhaul will "positively" affect its net earnings, there is some uncertainty around how beneficial the bill will be for foreign firms with large U.S. businesses.

BP said it is still reviewing 'a number of complex provisions in the legislation."

Credit Suisse says a new U.S. tax on services and interest payments to affiliated companies outside the U.S. could push its tax liability up. Longer term though, the bank said the tax changes would boost U.S. economic activity and its business there.